Think picking stocks is hard? Try picking a good mutual-fund manager.
Last year, fully 65% of U.S. large-capitalization core stock funds trailed the Standard & Poor's 500-stock index after fees, according to Goldman Sachs Group — in line with the five-year average of 66%.
Winning over two years was even tougher: Only 10% of the 1,991 U.S. stock funds that investment-research firm Morningstar tracks beat their benchmark in both 2011 and 2012.
Such sorry results have pushed tens of billions of dollars into passively managed index funds or exchange-traded funds that seek to match an index at low costs rather than beat it.
But a growing body of research suggests a few simple steps can improve your odds of finding a winning stock picker.
"The debate can't just be 'active versus passive,'" says University of Notre Dame finance professor Martijn Cremers
, who has researched predictability in mutual-fund returns. "Not all active funds are alike."
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